Investing is often a study of inconsistencies and contradictions. If it weren’t, the markets would be a simple game and there would no back and forth between buyers and sellers, greed and fear and technical analysts, fundamentalists and momentum players. Our experience with silver since the end of last year illustrates this [but] we [still] think it makes sense to get exposure to the metal. [Let us explain.] Words: 820
So says Dr. Stephen Leeb (www.leeb.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (sub-titles and bold emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
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Leeb goes on to say, in part:
In particular, [silver] shows the contradictions between two time-tested stratagems:
- the theory that an investor should let winners “run”—in other words, don’t sell something if it is performing well, don’t fix it if it isn’t broken, etc.
- the equally oft-proven adage that while bears make money and bulls make money, pigs often get killed [which is] a fancier way of saying don’t get greedy and take profits when you can.
In our experience, the longer one has been in the markets—or long enough to understand how hard it is to consistently make money—the more one tends to err on the side of the latter stratagem versus the former…
Our Long-Term Thesis for Silver
We’re content with the long-term investment thesis for the white metal:
- currently roughly 1.5 ounces of silver is consumed for every ounce that is mined. The twin characteristics of being both a precious and an industrial metal means that silver, unlike most commodities, has greater attraction than most
- the ratio between silver and gold has reached historical lows under 40, meaning it takes less than 40 ounces of silver to equal one ounce of gold. To get back to recent historical average levels of around 60, either gold has to fall (unlikely, given the fiscal and monetary situation in the world’s three most important currencies) or silver has to rise…There is no assurance that the ratio must revert; looking back several centuries, including when the American currency was first constructed under Alexander Hamilton, the actual historical norm when gold was used as money is actually in the mid- to high teens. Note, too, that at the previous high for silver back in January 1980, at which point silver fetched over $54 per ounce when adjusted for inflation etc., the ratio was 17.4—interestingly close to Hamilton’s original calculation.
Silver Investment Options
The only real competition against SLV is a smaller fund from ETF Securities, the ETFS Physical Silver Shares Trust (SIVR). Newer and smaller than SLV by a significant margin, SIVR has roughly $700 million in assets, compared to over $14 billion in SLV, and like SLV, stores its silver in vaults under London’s streets. This smaller fund is decently liquid, trading an average of 325,000 shares per day compared to 19 million in SLV, although this lower liquidity results in wider trading spreads. While SIVR carries an expense ratio of only 0.3% versus 0.5% for SLV and the returns for the two funds are almost identical, both would suit our purpose…The more adventuresome among you who are not put off by SIVR’s greater volatility and want to pay less in expense fees can easily swap one for the other. In either case, we suggest keeping a close eye on the position…
Potential Risks in Silver
Silver, in spite of its recent trajectory, could go higher still. This is not to say there is no risk in a renewed silver trade…While silver definitely rises faster than gold in a precious-metals bull market (as evidenced by recent events), it also falls faster when things turn around. From the 1980 ratio low, note that merely a bit more than a decade later, in February 1991, the same ratio was 101.8 and silver traded for $3.50 per ounce. Since then, the ratio has been in a more-or-less continuous downtrend, and it is clearly within the imagination that it is heading back to the mid-teens. After all, it is the ratio at which these two metals traded for centuries prior to the arrival of fiat, or paper, currencies…
Any new silver position—and we would advocate a physical-silver ETF instead of an equity- or futures -focused one in order to track the metal most closely—should be a small portion of your speculative budget and not a core holding. Nonetheless, with a decently tight stop-loss price and an understanding that any new position in silver must be watched closely, we think it makes sense to get exposure to the metal…
Psychologists tell us that there are five stages of grief over loss of whatever kind, usually death, or breaking up with a loved one, which are: denial, anger, bargaining, depression, acceptance. I’ve applied these to the loss of the dollar, as I see most people today are still stuck in denial, and here’s how to deal with that. Words: 1100
The silver index is still in the “Run” phase of the “Bump-and-Run Reversal Top” pattern which will be followed by a “Dead-Cat Bounce” decline that will drive prices gradually lower. [How much lower? Read on!] Words: 990
The technical situation is ultra-bullish for both gold and gold stocks. Sentiment indicators…continue to show [that] the dollar is poised for a serious decline and the MACD on the gold chart is giving one of the most powerful buy signals in the history of the bull market. The GDX should reach $75 a share by year-end and gold should push to new highs in the $2000 area by January of 2012 [while silver] could possibly be the best investment opportunity available to investors for many years to come! [Let me explain and back up my comments with an array of charts.] Words: 781
If you concur with the 159 analysts (see below) that maintain that physical gold is going to go parabolic in price in the next few years to $3,000, $5,000 or even $10,000 or more then you should seriously consider buying physical silver. Why? Because the historical gold:silver ratio is so way out of wack that silver should appreciate much more than gold as it goes parabolic in the years to come. Indeed, silver could easily reach $100 – $200 per troy ounce, maybe even $300 and conceivably in excess of $400 depending on how high gold goes. The aforementioned may be hard to believe but an analysis below of the historical price relationship between silver and gold suggests that such will most likely occur if gold does, indeed, go parabolic. Take a look. Words: 1423
Don’t own any gold or silver yet? New to the precious metals? Regardless whether you are a novice or seasoned veteran, the following seven points provide essential background information you can use to help determine whether the precious metals are right for you. Words:1311
Oftentimes perception, and not reality, rules the day with the thousands or millions of speculators placing short term bets with assets like silver. These perceptions are particularly strong given that paper players in the silver market often control the price in the short term (6-8 months), since there is so much more paper silver than physical metal out there…Here are five common myths about silver that I bet many speculators still believe are true. Words: 1638
Now that Q4 is underway, investors are scrambling to find the right asset class for this rocky environment. Last quarter wreaked havoc on a number of investments and portfolios alike, as the global economy seems to be on a downward spiral. Given the current environment, various investors have flocked to their favorite safe havens to wait out the storm. Gold is perhaps the most popular safe haven in troubled markets, though its actual use as a metal is relatively low. As such, there has been much speculation over whether or not the metal is overvalued, scaring a number investors out of gold and into another precious metal, silver. Words: 3422
We have a financial system that’s on the edge of a cliff here. People have to be in precious metals if they want to protect themselves. Everyone who’s an investor has money. They have it invested in some paper instrument and when they realise they have a problem with their money in a bank or owning some government note the demand for gold could just be overwhelming! It could be parabolic all of a sudden. Currently, only o.75% of the world’s financial assets are in gold so just imagine what a 5% to 10% interest in gold would mean for its price. On top of that, I believe that silver will get back into a 16:1 ratio to gold in three to five years for sure so that means that silver is going to have a great upside potential. Got gold? Better yet, got silver? Words: 5169
We are at the beginning of a major shift out of paper assets into real assets [and] those that are starting to come to this revelation have no real understanding what they are doing when they are buying gold…[they just want] to get out of paper assets. I bought gold as a gut reaction [but] the more I learned about silver, [however,] the more I realized that silver was the smart decision. [Let me explain.] Words: 2190